>offered an adwords package that had a setup fee for one ad group
Some people manage other people's Adwords account for a living (like me). It seems you spoke to one of those.
>Bronze=50 keyword phrases, Silver 100 keyword phrases etc.
The thing is - and I seen this in quite a few people's accounts, is that the main trick with Adwords is the keywords themselves. One of my clients had maybe 300 keywords in his account when I took it over. 24 hours later he had 3000. I don't know what it is now, but it'll be a lot more than that.
If you are only going to have keywords in the 100's then these are likely to be the most popular keywords, and you are going to be paying a fortune for them! You are going to need thousands and thousands of keywords - unless you've only one product, that is, and few ways to describe it. These thousands of keywords can often be had for very little money.
Then what you do is put conversion code on your pages. You can see which keywords made you money.
With my accounts I like to give a keyword so much leeway - $5 perhaps, and if it hasn't made a sale by the time $5 has been spent on it, its gone. How much leeway it gets depends on the client's profit margins.
Thats the great thing about online advertising. It used to be half your advertising was wasted and you never knew which half! Now you do know.
The second thing you need to do is keep refining your adverts so more people click on them. A rubbish ad might cost you $5 per click if no-one clicks on it much. A good ad might cost you 50c and they will both be in the exact same position.
Talking of position - the top spot might mean more clicks, but that doesn't always mean more profit. Watch your margins and find the best position for an ad to be.
There are other techniques too, but those are the basics. You need to know the basics even if you are going to let a third party run the account because all some of them do is throw more and more money at the top few hundred keywords till the client is bankrupt.
>How much is this offer really costing me? Is it saying that after paying the setup fee for one ad group I can choose 50 keyword phrases for an extra £25 for that particular month.
I don't know. But to seek to confine your advertising to one adgroup suggests they are unaware of some of the finer points of 'click through ratios' :)
>What happens if just one of those 50 phrases chosen is clicked on 50 times in the one day.
Well you do set a daily budget, but in reality what you should do is the first few days its running you watch that account like a hawk! Any keywords getting too many clicks means the price should be brought down.
That way you spread the clicks through all the keywords.
After you've done that, you basically spend the rest of your time making your ads more appealing, and moving stuff around very carefully.
Some of this work can be pretty tedious. Do you have any perfectionists in your family/organization? Control freaks? Any Virgos maybe?
Those are the sort you want. Buy them a couple of Adwords ebooks to read (PM me for recommendations), sit them in front of the computer with a budget and a mission and watch 'em go..!